M/S. International Clearing And Shipping Agency, Old v. The Assistant Commissioner Of Income Tax, Business Range-Viii, Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 20.12.2016 CORAM THE HONOURABLE MR. JUSTICE HULUVADI G. RAMESHANDTHE HONOURABLE DR. JUSTICE ANITA SUMANTH T.C.A.NO.703 OF 2016 M/s. International Clearing and ShippingAgency,Old No.158, New No.325,Linghi Chetty Street,Parrys, Chennai 600 001... AppellantVs The Assistant Commissioner ofIncome Tax,Business Range-VIII,Chennai 600034 .. Respondent Prayer: Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal, “D” Bench, Chennai, dated 11.2.2016 inI.T.A.No.93/Mds/2011.Appeal against the order of Commissionerof Income Tax(Appeals) in I.T.A.No.61/09-10 dated 25-10-10 onthe file of Commissioner of Income Tax(Appeals)IX,121,MahatmaGandhi Road,Chennai-34.against the order of the AdditionalCommissioner of Income Tax,VIII 1st Floor,Kannamal BuildingNo.611,Anna Salai,Chennai-6 made in PAN/GIR No.AAAFI0178Bdated 31.12.2009 for the assessment year 2007-08. For Appellant : Mr. R. Vijayaraghavan For M/s.Subbaraya Aiyar Padmanahan For Respondent : Mr.M. Swaminathan*****J U D G M E N T (Order of the Court was made by Dr.Anita Sumanth, J.) This Tax Case Appeal is taken up for hearing anddisposal at the stage of admission after hearing bothparties. 2. The issue relates to allowance of expenditureincurred by the appellant on motor cars. The followingSubstantial Question of Law has been raised as arising from anorder of the Income tax Appellate tribunal dated 11.2.2016.https://hcservices.ecourts.gov.in/hcservices/'Whether, on the facts and in the circumstances of the case, the Tribunal wasright in law in holding that the expenditure onmotor cars was personal?' 3.In the course of assessment, expenditure on motor carsincurred by the appellant of an amount of Rs.12,44,473/- waspartly disallowed by the assessing officer on the assumptionthat a portion thereof was personal in nature. In appealbefore the Commissioner of Income Tax (Appeals), the number ofcars was ascertained at 12 as against 17 as noted by theassessing officer and the ground of appeal allowed. Infurther appeal before the Income Tax Appellate Tribunal at theinstance of the Revenue, the order of the Commissioner ofIncome Tax(Appeals) was reversed and that of the assessingofficer restored. 4. Mr. R.Vijayaraghavan, learned counsel for theappellant draws our attention, to the Income Tax Rules,specifically Rule 3, that provides for a comprehensivemethod of valuation of perquisites, including motor cars andwould submit that the Rule may be applied in the presentcase. Mr. Swaminathan, appearing for the Department, wouldobject pointing out that application of Rule 3 was neverinvoked either at the stage of assessment or appeal. 5. Be that as it may, the purpose of Rule 3 is toprovide a methodology to arrive at a proper valuation ofperquisites. Rule 3(2)(A) sets out the manner ofdetermination of the value of Motor Cars based on capacity anduse. Clause B sets out the documentation required to bemaintained to establish the incurrence of expenditure as apre-condition to the claim thereof. Though the Rule addressesthe computation of income under the head 'salaries' we do notsee why the methodology prescribed therein cannot be appliedin other situations as well, including the determination ofa claim under section 37 of the Act. This is particularly soin a case such as the present one where the disallowance hasbeen made only on the basis of a presumption of personal use. 5. Be that as it may, the purpose of Rule 3 is toprovide a methodology to arrive at a proper valuation ofperquisites. Rule 3(2)(A) sets out the manner ofdetermination of the value of Motor Cars based on capacity anduse. Clause B sets out the documentation required to bemaintained to establish the incurrence of expenditure as apre-condition to the claim thereof. Though the Rule addressesthe computation of income under the head 'salaries' we do notsee why the methodology prescribed therein cannot be appliedin other situations as well, including the determination ofa claim under section 37 of the Act. This is particularly soin a case such as the present one where the disallowance hasbeen made only on the basis of a presumption of personal use. 6. We, thus remand the matter to the file of theassessing officer to be re-considered afresh including theapplication of Rule 3 of the Income Tax Rules, afterascertaining the number of cars that were owned and utilisedby the appellant for the purpose of business during therelevant financial year. The appeal of the assessee standsallowed by way of remand. No costs. Consequently, connectedC.M.P.No.14987 of 2016 is closed. Sd/- Asst.Registrar /true copy/ Sub Asst. Registrar To1.The Assistant Commissioner ofIncome Tax,Business Range-VIII,Chennai 600 034. 2.The Income Tax Appellate Tribunal,'D'Bench,Chennai 3.The Commissioner of Income Tax(Appeals)-IXChennai 600034 4.The Additional Commissioner of Income Tax Business Range-VIII 1st floor,Kannammal Buildings,No.611,Anna Salai,Chennai-600006. +1cc to Mr.Subbaraya Aiyar Padmanabhan,Advocate sr.74492+1cc to Mr.M.Swaminathan,Advocate sr.74496T.C.A.NO.703 OF 2016ks(co)ss(9/3/2017)